A primary purpose of most companies is to organize people and money to innovate. Traditionally, the predominant method of organizing companies has been a centralized, hierarchical, command-and-control management structure (i.e. the organizational chart). Executives typically define a strategic framework for the company's business, identify key business objectives, and organize the company into functional groups. These groups are allocated resources—a manager, a budget, and a reporting staff. At each level in the organization, objectives are translated into tasks. Performance information flows up the management reporting structure, being filtered and summarized by managers at each level.
The problem with a traditional command-and-control management structure is that it is nearly impossible for an executive, a central decision-maker, to keep the organization optimized for maximum throughput, efficiency, and robustness. This is because no executive is working with the complete, real-time, tacit knowledge of every employee in the organization. As a consequence, while the organization may be occasionally optimized, it oscillates between two extremes: underutilization and instability. Underutilization occurs where the company's resources are poorly applied to solving a problem. An example of underutilization is two separate departments spending millions of dollars to solve a nearly identical problem—each unaware of the other's activities. Instability occurs where the company's resources are effectively applied to solving the wrong problem. An example of instability is vigorous and efficient execution of a project that is strategically flawed for reasons well understood to employees within the company or on the project itself. Nearly everyone who has worked at a company has an intuitive understanding of what causes these sub-optimal performance states: Among these are (1) inefficient communications (2) reward systems that are poorly aligned with desired results, and (3) politics arising from the organizational structure itself. Companies are constantly seeking new management techniques in an effort to solve these problems and to better organize themselves.